Site Search Navigation

Search NYTimes.com

Loading...

See next articles

See previous articles

Site Navigation

Site Mobile Navigation

Supported by

ECB Death Wish

July 5, 2012 3:53 pmJuly 5, 2012 3:53 pm

Can the euro be saved? It’s not easy. I think of the euro problem as involving three layers: troubled banks, overlaid on troubled sovereign debt, overlaid on a deep problem of competitiveness created by runaway
capital flows between 2000 and 2007. Saving the thing requires credible bank rescue, sufficient intervention in Spanish and Italian bonds to keep yields manageable, and high enough inflation in Germany that the
south doesn’t face an impossible need for deflation.

I don’t expect Europe to accept the whole program all at once. But just to keep the crisis from exploding, we need enough movement from policy makers to give hope that a solution is coming, and reassure markets.

So what did the ECB do today? The minimal amount. Even in Frankfurt I guess they realized that not cutting rates at all would have meant full-blown crisis right away; but there was no effort to get ahead of the curve,
no message about more to come.